Non-linear threshold effect of financial development on renewable energy consumption: evidence from panel smooth transition regression approach

Financial development is identified as one of the significant factors that affect energy consumption and has been widely discussed in the literature. However, the association between financial development and renewable energy consumption is still at its earlier stage and is limitedly explored. Therefore, the purpose of this study is to examine the non-linear association between financial development and renewable energy consumption in the top renewable energy consumption countries. The study utilized the newly introduced econometric technique panel smooth transition regression (PSTR) model with two regimes on annual panel data consisted of years 1997-2017. The result confirmed that all the financial development indicators increase renewable energy consumption but affect renewable energy consumption differently. Moreover, the economic growth and industrial structure showed a positive and significant association in both regimes, whereas the population showed a negative relationship with renewable energy consumption in a low growth regime but the association becomes positive in high growth regimes. The study suggested several policies for the top renewable consumption countries.